CEO pay: Flatter salaries, but bigger bonuses

Your company’s CEO probably doesn’t make 1,951 times your salary, like Discovery Communications’ chief David M. Zaslav, but he (or, far more rarely, she) is still doing all right.

While U.S. worker pay went nowhere over the past 12 months, rising a scant 0.3%, big-company CEOs’ compensation climbed by an average of 5% last year, according to a new Mercer study, to a median of nearly $10.3 million. That was slightly more than the median 4% increase in chief executives’ pay in 2013.

Most of those gains didn’t come as salary hikes. Instead, Mercer reports, “base salaries changed little” among top executives at the S&P 500, remaining flat at a median $1.5 million. But salary now accounts for only about 10% of CEOs’ total pay. The rest takes the form of performance bonuses, especially long-term incentive pay. Those payouts grew by 6% last year, to a median $7.1 million.

“As CEO pay receives more scrutiny from stakeholders, companies have responded by holding the line on fixed compensation,” notes Tracy Bean, a Mercer partner who specializes in executive pay. “They’re focusing more on other elements that are tied to performance.

“Total shareholder return is the most popular performance measure,” Bean adds. “It’s easy to explain, and shareholders and other stakeholders respond favorably to measures using stock price performance.”

The trend should please investors. More than 90% of the S&P 500 have turned pay-for-performance into by far the biggest element of CEO pay packages, the study says. Other stakeholders may be less impressed. The average CEO pay package is still, after all, worth 303 times what a company’s median employee earns. As CEO pay keeps going up, regardless of what form it takes, that Grand Canyon-sized income gap is only getting bigger.